No More Shades Of Grey - The Supreme Court confirms grey market goods can constitute a criminal offence

10 Aug 2017

The Supreme Court has confirmed in R v M and others [2017] UKSC 58 that the offence of unauthorised use of trade marks under section 92(1) of the Trade Marks Act 1994 (the “Act”) is made out in relation to “grey market” goods in addition to counterfeit “fake” products.

Grey market goods are products to which the trade mark owner has authorised the application of its trade mark, but which have then been subsequently sold without the owner’s consent. These circumstances might arise for example where an order is placed with an authorised manufacturer by the trade mark owner but is later cancelled, or where the goods were part of a batch whose manufacture had been authorised but which, after manufacture, were rejected as not being of sufficient standard (to quote two examples given in the previous Court of Appeal judgment of this claim).

This case involved a number of very well known brands, including Ralph Lauren, Adidas, Jack Wills and Fred Perry. The defendants are alleged to have been involved in unlawfully selling various kinds of branded goods in the UK, all sourced from outside of the EU, some of which were not manufactured either by or under the direction of the trade mark owners and thus were unquestionably “true” counterfeits. However, some of the products were “grey market” goods, in that they had been manufactured by factories with the authority of the trade mark owners, but had not been disposed of with such authority. The question before the court was whether people could be liable to criminal prosecution under section 92 of the Act if, with a view to gain or to cause loss, they sell or possess (for business purposes) the latter category of “grey market” goods, or, whether they could only be liable to such prosecution if the products in question were fakes.

In a decision which will delight brand owners, the Supreme Court has confirmed the Court of Appeal judgment that people can be prosecuted in relation to grey market goods under section 92 of the Act. It should be noted that the facts of this case did not involve “parallel imports”, namely genuine branded products which are sold in one country by a trade mark owner or with its consent but imported into another country for resale without its authority. We deal with a lot of cases involving parallel imports and products which were first sold by a brand owner in Brazil or the USA for example, and are then subsequently imported into the UK or the wider EU without the consent of the trade mark owner and sold within that territory. Although not directly concerned in this case, parallel imports are also grey market goods and this decision means that selling such parallel imports is also likely to be considered a section 92 criminal offence.

It was recognised at the Court of Appeal stage that this decision could lead to some potentially harsh outcomes, for example, a student buying legitimately branded jeans in the USA from an outlet and then re-selling them in the UK on eBay would theoretically be liable to prosecution, but it also stressed that persons will not be subject to the criminal sanctions if they have acted honestly and reasonably. There is also a defence under section 92(5) of the Act for defendants who can demonstrate that they had reasonable grounds to believe that use of the trade mark in the manner they did was not an infringement.

Overall, the decision is a hugely positive step for brand owners, which could now initiate criminal prosecutions in addition to having the usual civil remedies available to them. In our experience, too often infringers find it difficult to accept that their actions in dealing in so called “genuine” products, i.e. grey market goods or parallel imports, are unlawful and that can present a real barrier to dispute resolution. We hope that this latest confirmation from the Supreme Court will bring further clarity in relation to the nature of this type of activity, and thus, in addition to opening up the possibility of pursuing criminal sanctions as referred to above, will assist parties to civil disputes in reaching quicker and thus more cost efficient settlements.

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